28, no debt (student and car loans paid off), emergency fund in place, fully funding my Roth IRA (VFFVX), contributing 10% into my employer public employee retirement system plan, and putting aside funds in a regular savings account to meet home down payment savings goals. I am at the lower end of the 25% marginal tax bracket, and currently employ an aggressive investing strategy (90%+ of my portfolio is in equities).

After everything, I still have about an additional $130-200 that I can contribute monthly to either:

What do you all think makes more sense for me to do in the long run – contribute to this specific 403b plan (link below), or continue to grow my index fund? I only have that index fund in my taxable as a way to invest money that cannot go into an already-maxed out Roth, therefore I do not need it anytime soon. My only hesitation is that I saw a lot of the Fidelity 403b options have high turnover %'s and high expense ratios, so maybe it might not even be worth it – but that’s the thing – I don’t know.

Based on the info below and what you already know, what are your thoughts? What will make more money for me in the long run?

I suggest contributing as much as you can to your 403b. It offers some very diversified index funds with very low expense ratios, such as:
Fidelity Total Market Index Fund Premium Class (FSTVX), ER 0.045%;
Fidelity Total International Index Fund Premium Class (FTIPX), ER 0.11%; and
Fidelity U.S. Bond Index Fund Premium Class (FSITX), ER 0.05%.

Those are the funds I suggest that you use. In fact I suggest that you contribute to the 403b using these funds, as a priority ahead of additional taxable investing.

You are in the 25% tax bracket. You should not be giving up the benefit of the tax deduction for contributing to your 403b, or the benefit of the tax-deferred compounding in the 403b. Contributing to your 403b will be better in both the short-term and the long run.

You are very fortunate to have these funds offered in your 403b.

"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link:Getting Started

When you all mention your federal tax brackets, why are state brackets not included, I know some states do not have one though. If I am getting hit at 5.5% in my state, I take it that should be tacked onto the federal bracket when tackling the "401k or brokerage" analysis. Obviously the OP's situation is easy because his ER's are so low in his 403b.

Congrats on being debt free and in pretty good financial shape. 90% stocks is fine as long as you won't need to touch it in an emergency, but be warned that emergencies have a way of coming up during market downturns when people lose their jobs. With a suitably healthy emergency fund, and an iron stomach, this can be fine.

Am I correct to assume you pay state income tax, and are in a 4% bracket too? Your 403b has some good options. The first option under DIY is a S&P500 index at .05%, which is quite good: Fidelity® 500 Index Fund - Premium Class / FUSVX

The tax deferred 403b allows investment dividends to grow without taxes. So for retirement savings, all else being equal, it's good to utilize this space. If you change employers, you can roll a 401k/403b into an IRA at vanguard/fidelity/schwab etc for more options.

At a 25% marginal bracket + 4% state, you'd also be saving on a fair bit of taxes right now. You might even be able to push yourself down into the 15% bracket so that your taxable dividends and long term capital gains become tax free.

You might think that 29% times 2400 means a 696 tax savings. But the math is more favorable than that. Investing $2400 of after-tax money is equivalent to $3380 in your 403b for a $980 tax savings. Sure, you'll owe taxes on withdrawal, but in the meantime it'll grow tax-free, and one can hope that what you save at the 25% bracket will get taxed at 15% in retirement. Maybe.

I would absolutely invest in that 403b! in fact, I would sell what you have in taxable and live off that while you up your contribution some more effectively transferring your taxable investments to the 403b.

zayd13 wrote:28, no debt (student and car loans paid off), emergency fund in place, fully funding my Roth IRA (VFFVX), contributing 10% into my employer public employee retirement system plan, and putting aside funds in a regular savings account to meet home down payment savings goals. I am at the lower end of the 25% marginal tax bracket, and currently employ an aggressive investing strategy (90%+ of my portfolio is in equities).

After everything, I still have about an additional $130-200 that I can contribute monthly to either:

What do you all think makes more sense for me to do in the long run – contribute to this specific 403b plan (link below), or continue to grow my index fund? I only have that index fund in my taxable as a way to invest money that cannot go into an already-maxed out Roth, therefore I do not need it anytime soon. My only hesitation is that I saw a lot of the Fidelity 403b options have high turnover %'s and high expense ratios, so maybe it might not even be worth it – but that’s the thing – I don’t know.

Based on the info below and what you already know, what are your thoughts? What will make more money for me in the long run?

Take advantage of all savings opportunities that will get you out of the 25% tax bracket and into the 15% tax bracket. So, contribute to your 403b so that you are comfortably into the 15% bracket. After that it becomes iffier considering the way qualified dividends and long-term capital gains are taxed in taxable. For instance, if you are in the 15% tax bracket they are taxed at 0%. If the qualified dividends and LT capital gains end up pushing you into the 25% tax bracket, that won't be the case, but the max you will be taxed is 15% (on qualified dividends and LT capital gains).

Thank you all of you for your detailed advice, it's extremely helpful!

Clarification:I live in Ohio, and I am in the 3.96% income tax bracket (sorry I didn't inclue that in the beginning!)

Remaining questions:

-When a time comes where I leave my employer and decide to roll over my 403b into an IRA (likely with Vanguard), are there any fees I must pay for that or other penalties I should be aware of for rolling over my 403b into an account with a different provider? Essentially I am hoping the mnior headache I'll have from managing yet another retirement account is worth it, but also manageable (I'm a pretty organized person though).

-I already have a target date retirement fund in my Roth. Would it make sense to do another one in my 403b? Ruralavalon gave me some great suggestions, and I'm wondering if it will become a lot of work in the long run to re-balance those three funds. I'm leaning towards choosing my own core funds as opposed to the single fund solution, but wondered if you had anymore insight on that.

-Can anyone think of any downsides or cons that I should consider if I am to start a 403b as opposed to growing my taxable VTSMX? Doesn't sound like there are many, but I love making informed decisions and would rather know more than not.

I can't say enough how much I value all of your help. This community has been essential in helping me build my financial knowledge and really - my future - so just wanna say that I appreciate everyone!

zayd13 wrote:Thank you all of you for your detailed advice, it's extremely helpful!

Clarification:I live in Ohio, and I am in the 3.96% income tax bracket (sorry I didn't inclue that in the beginning!)

Remaining questions:

-When a time comes where I leave my employer and decide to roll over my 403b into an IRA (likely with Vanguard), are there any fees I must pay for that or other penalties I should be aware of for rolling over my 403b into an account with a different provider?

Not unless your employer has restrictions. There will also be no tax cost for rolling to a traditional IR. If you choose to roll to a Roth IRA, you will pay tax cost just as if you had converted a traditional IRA to a Roth but the money will then grow tax-free.

I have one such restriction. I used to be on the faculty at the University of Michigan, where I contributed to the 403(b) with an employer match. Michigan allowed me to roll my own contributions into an IRA after I left, but I cannot withdraw the match until I turn 55. (This isn't costing me anything, as it is a very good plan with TIAA and Vanguard options; it's just one additional small account to keep track of.)

Those are the funds I suggest that you use. In fact I suggest that you contribute to the 403b using these funds, as a priority ahead of additional taxable investing.

You are in the 25% tax bracket. You should not be giving up the benefit of the tax deduction for contributing to your 403b, or the benefit of the tax-deferred compounding in the 403b. Contributing to your 403b will be better in both the short-term and the long run.

You are very fortunate to have these funds offered in your 403b.

Do you suggest I allocate my contributions evenly among all three of these funds?

Those are the funds I suggest that you use. In fact I suggest that you contribute to the 403b using these funds, as a priority ahead of additional taxable investing.

You are in the 25% tax bracket. You should not be giving up the benefit of the tax deduction for contributing to your 403b, or the benefit of the tax-deferred compounding in the 403b. Contributing to your 403b will be better in both the short-term and the long run.

You are very fortunate to have these funds offered in your 403b.

Do you suggest I allocate my contributions evenly among all three of these funds?

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

Transfer fees and restrictions will be up to your 403b provider. Generally they should be minimal but you should call to find out. This is not a reason that should discourage you from taking advantage of a massive tax benefit and getting started on saving for retirement.

Target date is fine as long as the expense ratio is low. They are internally diversified, made up of multiple funds that themselves contain thousands of stocks. Only caution is that 403b plans can be tricky because some providers jack the fees and target date funds can sometimes run higher than individual funds. You can post all of your fund choices with expense ratios to make sure.

The only possible downside would be if you have terrible fund options. Again you can post your fund options here to confirm. Your plan would have to be truly terrible to keep you from investing in it.

You should use the 403b for sure. Deferring tax, especially in your bracket, usually provides you with more money in the long run.

That is a very long list of funds available. I didn't see the ones that ruralavalon mentioned, but I saw some equally as good.

-500 Index

-Extended Market Index

-Global except US Index

-An intermediate term bond index

They were all very low cost. There might be another cost added on by the 403b plan (there often is).

Another thing you might look for. It appears your employment is public of some kind. See if there is a state sponsored 457b plan available for your use. You can defer taxes on more money (an additional $18k contribution) and the costs are often better anyway.

It's a bear of a list. I finally did searches on index and ind and idx and found the ones I found. All in all, a very good list, just unwieldy, especially if you don't know what specifically you are looking for.

retiredjg wrote:Another thing you might look for. It appears your employment is public of some kind. See if there is a state sponsored 457b plan available for your use. You can defer taxes on more money (an additional $18k contribution) and the costs are often better anyway.

That's correct, I work for a public university, and they do have a 457b option. Do you mean instead of or in addition to the 403b?

Last edited by zayd13 on Fri Apr 21, 2017 6:09 pm, edited 1 time in total.

ruralavalon wrote:I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

Thank you, as this is really helpful. This might be a dumb question, but how difficult/easy is it to re-balance if I go with these ratios? I have a target date fund (VFFVX) so I have never exactly had to re-balance. Are there fees going to be associated with buying/selling in order to re-balance if conducted within a 403b?

zayd13 wrote:This might be a dumb question, but how difficult/easy is it to re-balance if I go with these ratios? I have a target date fund (VFFVX) so I have never exactly had to re-balance. Are there fees going to be associated with buying/selling in order to re-balance if conducted within a 403b?

There should be no fees to rebalance within a 403(b), unless you rebalance into or out of funds which have loads, or purchase or redemption fees. Loads are not common in retirement plans, and few funds have purchase or redemption fees; check the prospectus of the funds.

Those are the funds I suggest that you use. In fact I suggest that you contribute to the 403b using these funds, as a priority ahead of additional taxable investing.

You are in the 25% tax bracket. You should not be giving up the benefit of the tax deduction for contributing to your 403b, or the benefit of the tax-deferred compounding in the 403b. Contributing to your 403b will be better in both the short-term and the long run.

You are very fortunate to have these funds offered in your 403b.

Do you suggest I allocate my contributions evenly among all three of these funds?

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities". Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6).

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.

zayd13 wrote:That's correct, I work for a public university, and they do have a 457b option. Do you mean instead of or in addition to the 403b?

Instead of if the costs are lower. In addition to if you can save that much.

If you have additional funds, Ohio457.org (Ohio Deferred Compensation) provides most Ohio public university employees with an awesome 457 with very low expense ratio Vanguard Institutional Index funds. I contribute to the Fidelity 403b and Ohio 457 plans since both have low expense ratios.

zayd13 wrote:That's correct, I work for a public university, and they do have a 457b option. Do you mean instead of or in addition to the 403b?

Instead of if the costs are lower. In addition to if you can save that much.

If you have additional funds, Ohio457.org (Ohio Deferred Compensation) provides most Ohio public university employees with an awesome 457 with very low expense ratio Vanguard Institutional Index funds. I contribute to the Fidelity 403b and Ohio 457 plans since both have low expense ratios.

After contributing to OPERS and fully funding my Roth (and of course all of my other financial obligations), I'll only have about $150 to contribute to another retirement account. With that said, if I had to choose between the 403b options I've presented here, and the Ohio Deferred Compensation plan - which would you go with? Being in my position what would be the major pros and cons of each if you don't mind sharing? It's always stuck with me that one of the first rules of investing is only invest in what you understand, so pardon me for all the questions!

Take a good look at the four-in-one fund. If you can live with the bond %. I think it is 15%, that would be a nice balanced fund with no work at all. If later on you wanted to split it up, you still could with no tax consequences.

Also take a look at the 457. It has some unique advantages if this is a governmental 457.

Here's the funds in the Ohio 457. There's an added 0.14% fee added to each fund's ER. "Administrative fees will be waived if the total of a participant’s account balance(s) is below $5,000. Administrative fees will be capped at $55 per quarter, per participant."https://www.ohio457.org/tcm/ohio457/static/OhioIPR.pdf

I don't think we are clear yet on whether there is a cost added on to the ERs in the 403b plan.

Depending on that extra cost (there frequently is one), either plan could be a good one. The thing that might make the 457b more attractive is that the money is available to you any time after separation from employment. There is no age requirement.

zayd13 wrote:That's correct, I work for a public university, and they do have a 457b option. Do you mean instead of or in addition to the 403b?

Instead of if the costs are lower. In addition to if you can save that much.

If you have additional funds, Ohio457.org (Ohio Deferred Compensation) provides most Ohio public university employees with an awesome 457 with very low expense ratio Vanguard Institutional Index funds. I contribute to the Fidelity 403b and Ohio 457 plans since both have low expense ratios.

After contributing to OPERS and fully funding my Roth (and of course all of my other financial obligations), I'll only have about $150 to contribute to another retirement account. With that said, if I had to choose between the 403b options I've presented here, and the Ohio Deferred Compensation plan - which would you go with? Being in my position what would be the major pros and cons of each if you don't mind sharing? It's always stuck with me that one of the first rules of investing is only invest in what you understand, so pardon me for all the questions!

If I could only fund the Fidelity 403b or the Ohio Deferred Compensation 457b plan, I would choose Fidelity 403b because there are no additional fees (just the expense ratios which are approximately 0.045 to 0.11% for the standard 3 fund portfolio). The 457b has slightly lower expense ratios, but 2 years ago they added an additional management fee of 0.14% which is low, but not as good as the 403b with no added fees and low expense ratios.
Disclaimer- you need to check if your plan is the same. Not sure if all Ohio public universities have the same plans.

DA200 wrote:If I could only fund the Fidelity 403b or the Ohio Deferred Compensation 457b plan, I would choose Fidelity 403b because there are no additional fees (just the expense ratios which are approximately 0.045 to 0.11% for the standard 3 fund portfolio). The 457b has slightly lower expense ratios, but 2 years ago they added an additional management fee of 0.14% which is low, but not as good as the 403b with no added fees and low expense ratios.
Disclaimer- you need to check if your plan is the same. Not sure if all Ohio public universities have the same plans.

Good points. I also understand that you cannot roll a 457b into an IRA upon leaving your employer. Even with no fees/penalties, I'd hate to pay tax on it just to re-invest those funds anyways. I'll doa little more research, but I feel like going with the 403b and choosing the funds that were recommended I cannot go wrong.

zayd13 wrote:
I also understand that you cannot roll a 457b into an IRA upon leaving your employer. Even with no fees/penalties, I'd hate to pay tax on it just to re-invest those funds anyways.

Your 457 is a "government" 457, which allows rollovers to an IRA. It's the "non-government" 457 plans that have the rollover problem.

Are you aware that the 457 has unique distribution rules? If you quit your employer, you can take a distribution at any age. With the 403b, it's age 59.5, with some special exceptions. This makes the 457 a favorite of those who would like the option of an early retirement.

Also you can contribute to both a 403b and a 457, with a max of 18k to each.

krow36 wrote:Your 457 is a "government" 457, which allows rollovers to an IRA. It's the "non-government" 457 plans that have the rollover problem.

Are you aware that the 457 has unique distribution rules? If you quit your employer, you can take a distribution at any age. With the 403b, it's age 59.5, with some special exceptions. This makes the 457 a favorite of those who would like the option of an early retirement.

Also you can contribute to both a 403b and a 457, with a max of 18k to each.

Oh, I see. I had thought my 457b was non-governmental because I do not explicitly work for the state government - I work at a public university which I assumed was more non-profit than governmental. I am still very young and it is likely that I will not remain employed with my current employer until retirement (making the 457 attractive). At the same time, I wouldn't mind having to roll over a 403b into an IRA (since I doubt I will need early distributions).

Last edited by zayd13 on Sun Apr 23, 2017 8:31 pm, edited 1 time in total.

DA200 wrote:If I could only fund the Fidelity 403b or the Ohio Deferred Compensation 457b plan, I would choose Fidelity 403b because there are no additional fees (just the expense ratios which are approximately 0.045 to 0.11% for the standard 3 fund portfolio). The 457b has slightly lower expense ratios, but 2 years ago they added an additional management fee of 0.14% which is low, but not as good as the 403b with no added fees and low expense ratios.
Disclaimer- you need to check if your plan is the same. Not sure if all Ohio public universities have the same plans.

So I looked more into it, and actually my employer (OSU) does have the Ohio Deferred Compensation 457b plan. Since at the moment I can only contribute to one, then I think I will go with the 403b, since as you mention the Ohio Deferred Compensation 457b has the added management fee that the 403b does not.

Thanks for your insight, DA200. It's especially helpful that you're in Ohio because you have direct insight regarding my dilemma. Other than contributing to OPERS, maxing my Roth, and giving extra to a 403b - do you have any other advice regarding preparing for retirement or investing in general at my age?

Also, walk me through what happens if I get a 403b and leave my employer. If my new employer has the same 403b company, can I just continue where I left off, or would I have to roll it over into an IRA until retirement?

Let's say I went with a Fidelity 403b and rolled it into a Vanguard IRA after leaving my employer. Will it continue to grow in that Vanguard account? Or will it just sit stagnant until I have reached the penalty-free distribution age? Would I get to now choose Vanguard funds to invest the money in that IRA that came from the Fidelity 403b?

zayd13 wrote:Also, walk me through what happens if I get a 403b and leave my employer. If my new employer has the same 403b company, can I just continue where I left off, or would I have to roll it over into an IRA until retirement?

Let's say I went with a Fidelity 403b and rolled it into a Vanguard IRA after leaving my employer. Will it continue to grow in that Vanguard account? Or will it just sit stagnant until I have reached the penalty-free distribution age? Would I get to now choose Vanguard funds to invest the money in that IRA that came from the Fidelity 403b?

Every plan is different, even if the provider is the same. For example, my TIAA plan will have different third party options and share classes for TIAA funds than another TIAA plan. However, they are all generally easy to roll over, either into the new plan or into a self-directed IRA. You can also leave your old plan where it is, if, for example, it offers options that are not available in your new plan. Again, not a reason to not start contributing to your employer plan.

zayd13 wrote:Also, walk me through what happens if I get a 403b and leave my employer. If my new employer has the same 403b company, can I just continue where I left off, or would I have to roll it over into an IRA until retirement?

If you leave the current employer you can: 1) leave the old 403b where it is (there might be a small fee); 2) roll it over into the new employer's plan, if the new plan accepts rollovers; or ) roll it over into an IRA at a low cost provider like Vanguard or Fidelity.

The rollover is a fairly simple process. None of this affects the desirability of contributing to the current 403b. It's still a good idea.

zayd13 wrote:Let's say I went with a Fidelity 403b and rolled it into a Vanguard IRA after leaving my employer. Will it continue to grow in that Vanguard account? Or will it just sit stagnant until I have reached the penalty-free distribution age? Would I get to now choose Vanguard funds to invest the money in that IRA that came from the Fidelity 403b?

Yes it will continue to grow and compound tax-deferred.

Yes you could invest in Vanguard funds, you get to choose the company where you have the IRA.

"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link:Getting Started

ruralavalon wrote:If you leave the current employer you can: 1) leave the old 403b where it is (there might be a small fee); 2) roll it over into the new employer's plan, if the new plan accepts rollovers; or ) roll it over into an IRA at a low cost provider like Vanguard or Fidelity.

The rollover is a fairly simple process. None of this affects the desirability of contributing to the current 403b. It's still a good idea.

zayd13 wrote:Let's say I went with a Fidelity 403b and rolled it into a Vanguard IRA after leaving my employer. Will it continue to grow in that Vanguard account? Or will it just sit stagnant until I have reached the penalty-free distribution age? Would I get to now choose Vanguard funds to invest the money in that IRA that came from the Fidelity 403b?

Yes it will continue to grow and compound tax-deferred.

Yes you could invest in Vanguard funds, you get to choose the company where you have the IRA.